Wall Street firms were dealt another blow yesterday when 308 companies – including Martha Stewart Living, Priceline.com and Expedia.com – reached a proposed settlement of $1 billion with investors who said the companies’ IPOs were rigged against them.

The lawyers representing the wronged investors initially sued 55 investment banks as well as the 308 companies for conspiring to drive up IPO prices during the tech boom.

With the settlement with the companies, the plaintiffs’ case will focus solely on the banks, including Credit Suisse First Boston, Goldman Sachs and Merrill Lynch. More significantly, the issuing companies will hand over their claims against the banks to the plaintiffs’ lawyers and cooperate in their case – which could bring in anywhere from $1 billion to $10 billion, say some people close to the situation.

The settlement comes after one and a half years of mediation. “Now we can focus on the primary wrongdoers,” said Stanley Bernstein, vice chairman of the plaintiffs’ executive committee. “This allows investor classes greater leverage to pursue the investment banks and certainly yield a larger recovery.”

Materials that the plaintiffs can hope to get include road-show materials, drafts of documents related to the offerings and pitch books – brag-filled presentations made by the banks in efforts to win deals.

Plaintiffs have accused the banks of manipulating the market by arranging for other investors to buy additional shares of an IPO at higher prices. Buyers then paid excessive commissions for access to these IPO shares, say the plaintiffs.

The settlement with the issuers still must be approved by U.S. District Judge Shira Scheindlin, who is overseeing the aggregated IPO suits.

Lawyers representing the investment banks did not return calls for comment.

The $1 billion settlement is to be guaranteed by the insurance companies of the issuers, according to the terms of the deal.

But if the plaintiffs win more than $1 billion from the banks, the issuers – and their insurers -are off the hook.